3 ms·

I struggle with point number 4, "Did token holders rely on the efforts of others for their (expected) profits?". It is the effort of (early) investors that mak

I struggle with point number 4, "Did token holders rely on the efforts of others for their (expected) profits?". It is the effort of (early) investors that make/made Ether out of their own work (mining) that creates the token supply and because Ether is needed in order to interact with Ethereum DApps, it's the demand for the token that makes it gain market value in exchanges. This seems to suggest that there is an effort on the part of the investor. Many ICOs will simply state they are out of limits for US investors and again we see that regulators like democracy and capitalism but don't really want it to be accessible to _everyone_.

hudon 9y ago
That's what I thought. If I buy an Apple stock, I can't meaningfully contribute to the success of Apple (outside of investing more money). But if I was an early investor of ETH, I could build an Ethereum smart contract that is useful and thus provides value and thus makes the price of ETH go up as more people buy it to use my smart contract. Would it be correct to say then that as long as there is at least 1 useful smart contract that the Ethereum Foundation does not solely control, ETH would fail prong 4?
- bdudyehebehd 9y ago
  Doubtful. While you can't contribute to the success of Apple, you can certainly buy securities in a startup and meaningfully help them succeed (VCs) or buy 5% of Apple and assume some control of Apple (Hedge Funds).
- mickronome 9y ago
  I think there might be some missing detail in the article. It could be that the definition of 'others' might be broad, and that the only value requirement is that your expected value would be changed (lowered) if anyone but you invest or work in/with the enterprise. As such others would refer to both investors and workers/participants in the enterprise. There are parallels to this thinking in other (non US) legislation, which quite likely come from the same source. And both Apple and ETH would certainly lose value if I were both the only investor, and active participant in the enterprise.
- stult 9y ago
  The issue isn't whether you can hypothetically contribute to the potential security's value but rather is whether the success of the venture depends primarily on the efforts of others. There's a lot of grey area between being a regular Joe small shareholder in a massive publicly traded corporation (no participation) and being the sole owner and manager of a closely held corporation (clear participation). Its worth noting that commodity market fluctuations don't count as the efforts of others (e.g. Noa v. Key Futures where silver certificates weren't considered a security even when sold by an investment firm which marketing the certificates as investments). There's a trend in the modern interpretation of Howey toward something called the "risk capital test," which states that a scheme which raises capital to finance a venture should be considered a security. I'm not sure Ether meets that test and it's a minority rule anyway but modern Howey jurisprudence is quite flexible because scam artists tend to be extremely inventive in getting around the Securities Act. Ultimately the decisive factor in court is likely to be the unfortunately vague but essential standard "Do the investors in the scheme require the protection of the Securities Act of 1933?" The lack of a comparable regulatory system to protect the public against Ether scams counts against exclusion from the Securities Act. Otherwise, I personally think the case for Howey is weak here, but that's because the case law hasn't caught up to the tech yet. So we can't predict how a federal court might decide because they very well may revise the existing standards.
s73ver 9y ago
"Many ICOs will simply state they are out of limits for US investors and again we see that regulators like democracy and capitalism but don't really want it to be accessible to _everyone_." No. They just said that adding the phrase "on a blockchain" is not enough to make what you're doing suddenly different.
- decentralised 9y ago
  I think you misread my comment. What some ICOs already do is to explicitly state they are not available to US taxpayers, it has nothing to do with where the blockchain is located or if one is used.

hudon 9y ago

That's what I thought. If I buy an Apple stock, I can't meaningfully contribute to the success of Apple (outside of investing more money). But if I was an early investor of ETH, I could build an Ethereum smart contract that is useful and thus provides value and thus makes the price of ETH go up as more people buy it to use my smart contract. Would it be correct to say then that as long as there is at least 1 useful smart contract that the Ethereum Foundation does not solely control, ETH would fail prong 4?

bdudyehebehd 9y ago
Doubtful. While you can't contribute to the success of Apple, you can certainly buy securities in a startup and meaningfully help them succeed (VCs) or buy 5% of Apple and assume some control of Apple (Hedge Funds).
mickronome 9y ago
I think there might be some missing detail in the article. It could be that the definition of 'others' might be broad, and that the only value requirement is that your expected value would be changed (lowered) if anyone but you invest or work in/with the enterprise. As such others would refer to both investors and workers/participants in the enterprise. There are parallels to this thinking in other (non US) legislation, which quite likely come from the same source. And both Apple and ETH would certainly lose value if I were both the only investor, and active participant in the enterprise.
stult 9y ago
The issue isn't whether you can hypothetically contribute to the potential security's value but rather is whether the success of the venture depends primarily on the efforts of others. There's a lot of grey area between being a regular Joe small shareholder in a massive publicly traded corporation (no participation) and being the sole owner and manager of a closely held corporation (clear participation). Its worth noting that commodity market fluctuations don't count as the efforts of others (e.g. Noa v. Key Futures where silver certificates weren't considered a security even when sold by an investment firm which marketing the certificates as investments). There's a trend in the modern interpretation of Howey toward something called the "risk capital test," which states that a scheme which raises capital to finance a venture should be considered a security. I'm not sure Ether meets that test and it's a minority rule anyway but modern Howey jurisprudence is quite flexible because scam artists tend to be extremely inventive in getting around the Securities Act. Ultimately the decisive factor in court is likely to be the unfortunately vague but essential standard "Do the investors in the scheme require the protection of the Securities Act of 1933?" The lack of a comparable regulatory system to protect the public against Ether scams counts against exclusion from the Securities Act. Otherwise, I personally think the case for Howey is weak here, but that's because the case law hasn't caught up to the tech yet. So we can't predict how a federal court might decide because they very well may revise the existing standards.

s73ver 9y ago

"Many ICOs will simply state they are out of limits for US investors and again we see that regulators like democracy and capitalism but don't really want it to be accessible to _everyone_." No. They just said that adding the phrase "on a blockchain" is not enough to make what you're doing suddenly different.

decentralised 9y ago
I think you misread my comment. What some ICOs already do is to explicitly state they are not available to US taxpayers, it has nothing to do with where the blockchain is located or if one is used.